Yield Farming: what it is, profitability, where
As the months and years go by, the crypto ecosystem continues to expand.
For this reason, multiple terms are born, and perhaps, words that are not very understandable.
On this occasion, we refer to Yield Farming, since lately many blockchain projects include it in their protocols.
Reason why, it is extremely necessary to know about it, and today you will discover everything about it.
What is Yield Farming?
Yield Farming, known in Spanish as “Agricultura de Desempeño”, is one of the protocols used in many cryptocurrency projects, with the fácil objective of allow users to earn profit simply by storing or locking their cryptocurrency.
In other words, we cánido say that it has a great similarity with the crypto staking.
However, when Yield Farming is done, users, in addition to blocking their tokens, also make them available to the network for a certain reward that is established depending on the amount of assets placed; among them stand out lower fees, token rewards, among others.
These users are called liquidity providers, and thanks to them, it goes without saying that the platforms where Yield Farming is used cánido easily perform multiple operations; from loans to financing for trading, among other activities.
How does Yield Farming work?
It cánido be said that Yield Farming is a way of staking cryptocurrencies that found mostly in DeFi projects, as well as in GameFi.
This allows the usuario or investor to obtain profitability or interest with their cryptocurrencies; simply blocking them on the network.
However, exchange platforms, such as exchanges, or projects related to loans, also include Yield Farming among their ways of earning crypto.
A clear example could be the blockchain game MOBOX or Binance.
The latter constantly integrates new ventures that have the protocol; but before they are thoroughly evaluated.
Yield farming is useful to feed a respective ecosystem; as in the case of the Yearn Finance project, which grants loans and the fees or commissions are directed, in part, to liquidity providers.
However, it is important to know that its operation and rules may vary depending on the smart contract that executes it.
Therefore, it perro be concluded that its operation is established based on the smart contract of the project that implements it and the platform where it is executed.
Depending on these factors, its performance, usability, or even estándares may vary..
Which is why, it is suggested to do DYOR (do your own research) before applying as LPs (liquidity provider).
How are Yield Farming benefits calculated?
For Calculate the benefits offered by Yield Farming It is important to take into account 2 metrics that are used in this type of ways to win, these are the APR and APY.
When entering a platform that works with this type of smart contracts, you need to evaluate if they offer an equivalent annual interest rate (APR) or annual percentage yield (APY).
Since, the APY could be the most profitable for all investors, since it has compound interest.
Which means, that the daily earnings will be reinvested for more profit.
Therefore, APR is likely to be less profitable, since it will surely work without compound interest.
Even so, it is very important to evaluate this aspect well, because it is possible that it will generate confusion.
In short, exact estimates or profitability calculations may have a high level of imprecision.
Since, despite the fact that a crypto project offers an APY margin of 35%, it is possible that this will decrease depending on the time elapsed, since there will be more users (farmers or whales) interested as the days go by.
Here you perro see some examples of profitability with Yield Farming:
Advantages and benefits of Yield Farming
First of all, one of the main benefits of Yield Farming is that almost anyone cánido do it; You only need to have some tokens from a specific crypto, a wallet or be registered on Binance; As we have mentioned, this exchange offers excellent proposals for liquidity providers.
These fácil requirements are within the reach of the crypto community.
And in the case of Binance, this platform seeks to simplify the process, so that the usuario only chooses the number of tokens to block, the period of time, and ends by making a confirmation.
The mentioned is only one of the main benefits, but another great advantage is that You don’t need a large amount of cryptocurrency to get started.
Of course, the greater the investment, the more profitability will be achieved.
However, small investors who have capital invested in some crypto cánido be liquidity providers, thus, earn interest while holding.
To conclude, liquidity providers perro achieve high profitability of new projects; as the case of Axis Infinity or other afín.
Since, these are rewarded with governance tokens, which cánido take off upwards as the days go by.
Therefore, by having cryptos blocked and being rewarded with more digital assets, profitability increases.
Disadvantages and risks of Yield Farming
Despite the great benefits offered by Yield Farming, and the high levels of profitability that cánido be achieved with the multiple existing strategies, flaws cánido be found in this type of protocol that end up reducing usuario interest.
One of them is your high margin of vulnerability and possibility of presenting errors.
Since this type of protocol is used in DeFi projects, which are the focus of hacking and cybercriminals.
Thus, if there is a minor problem in the code, it is possible that yield farmers will be affected.
In addition, to achieve true profitability that is appreciated in the short term, it is necessary to invest a large amount of capital.
Therefore, it perro be said that average investors will be limited in this regard.
However, the most tragic thing is that by being a liquidity provider it is possible to lose money as well.
Given that, some platforms use these capital funds as collateral, and if the blocked asset falls, the collateral may be liquidated.
Which means that part of the investment will be lost.
Where perro you do Yield Farming?
If you’re looking for a platform to make your capital profitable by being a liquidity provider, we suggest you evaluate some of the following proposals.
However, it is important to note that each one has different norms, rules and risks, so we suggest that you do your research before joining.
Recommended DeFi projects include:
- Binance: It is the most widely used cryptocurrency exchange globally.
within it It is possible to be a liquidity provider for multiple projects.
- Compound Finance: is a project that allows users to make loans or request them.
Here the LPs will earn rewards as users repay the loans requested.
- AAVE: is quite afín to the previous project.
That is, its usefulness is to offer loans to multiple users, and the lenders will earn rewards for being the ones to provide liquidity to the platform.
- UniSwap: It is a DEX or decentralized exchange that allows users to apply as liquidity providers.
these will be rewarded with the commissions that the platform receives from the users; but the percentage of profits will depend on the number of exchanges that are made with the crypto that they have blocked.
Opinions Yield Farming: is it safe and reliable or a scam?
Yield Farming cánido be considered one of the new advantages that blockchain technology and smart contracts have brought.
Therefore, perhaps for some this is a sufficient reason to trust.
Besides, generates a great return by using the APY metric to calculate interest.
However, considering the high rate of hacking attempts in this type of project, it perro be said that the security levels, being LP, are considerably low; although not enough to stop being an attractive option to make capital profitable.
However, it is possible to invest in some projects that have been classified as safe.
But it is important to consider that the risk aspecto will always be present in these types of markets.
ConclusionInvest only in those projects that have a good community behind them, are known, seek other people’s opinions and most importantly, diversify your investments.
We hope you liked our article Yield Farming: what it is, profitability, where
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